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Tesla (TSLA): Are Investors Losing Faith?

Tesla (TSLA): Are Investors Losing Faith?

There can be little doubt that the Tesla Model S is a wonderful car. Critics and owners alike have raved over the combination of power and luxury that has been achieved, all in a zero emissions vehicle. Neither can there be much doubt that Tesla (TSLA) is already a truly disruptive company, the like of which comes along once in a generation or two. Having challenged and defeated the popular conception of electric vehicles as worthy, but boring, they have moved on to challenge the franchise dealership system that has dominated the car business since its inception.

The company has grand plans. Earlier this year, CEO Elon Musk said that Tesla could someday match the market cap of Apple (AAPL). There is, however, just one fly in the proverbial ointment: So far, Tesla has failed at the most basic function of a company; They have never made any money. Related: Impending Iran Deal Could Crush Current Rally

That simple fact hasn’t deterred the army of loyal followers. In anticipation of the launch of their first vehicle, the Model S, Tesla’s stock began a rapid ascent at the beginning of 2013. It climbed from around $30 to a peak of close to $300 in September of last year; an amazing feat for a company that, until the middle of 2012 had only one product, the Roadster, in the market.

TSLAChart Related: Who Benefits Most From Cheap Oil?

Since September, though, the stock has lost ground, as idealism has been replaced with realism. Investors were assured that two more models were coming soon, an SUV version dubbed the Model X and a more affordable version of the S known as the Model 3. The problem is that both are running seriously behind schedule and meanwhile the losses are piling up, causing traders to start betting on failure. Over 28 percent of the total float of Tesla shares are now sold short. It seems that Tesla has lost the aura of invincibility.

Once the company is judged on its performance as a company rather than its vision for the future of mankind, it is easy to conclude that, while there is enormous potential in the EV market and Tesla has the best product out there, current valuations are hard to justify. There are numerous risks to be mitigated and hurdles to be cleared if Tesla is ever to make money, let alone become vastly profitable within five years as some are suggesting. Related: Driverless Cars Poised To Transform Automotive Industry

Many major, conventional car companies have just begun to take EVs seriously, and once they throw their vast resources behind the concept the competition will be fierce. Even that, though, assumes that electric is the way to go. Toyota, for one, have continued with hybrid vehicles, but invested more in cars powered by hydrogen fuel cells than electricity. The power and range achievable with hydrogen power is comparable to battery power, but it has one major advantage. Refueling takes minutes, rather than the hours it takes to recharge batteries.

Investing in Tesla takes an enormous amount of faith. It takes faith that EVs really are the future and won’t be usurped by another technology. It takes faith that Tesla isn’t a one trick pony, which already peaked with the Model S. It takes faith that advances in charging technology can make the cars more practical. It takes faith that the infrastructure build out of charging stations will continue and even increase in pace, and that the battery factory the company is building will solve cost and supply problems that they now face. All of these things are possible, and all have been promised by Musk. Until they come about, though, an increasing number of investors are likely to ignore the hype and say “Show me the money!”

By Martin Tillier of Oilprice.com

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  • Julian Cox on March 29 2015 said:
    Extremely poor quality research.

    Hydrogen vehicles are incapable of achieving the power of a Tesla Model S. Model 3 is not delayed. Model X proved to be unnecessary to make 2014 production numbers promised to shareholders in 2012 for Model S and Model X combined - Model S made the numbers on its own. (Errata: Tesla had a limited production run vehicle in the market in 2008 and launched the production Model S into the market Summer 2012, achieving profitability in the first quarter of 2013).

    Criticising operational profitability of a company that reinvests 100% of its profits in growth is ridiculous. No, investors are not losing faith in the company's ability to rapidly deliver significant mass production of a vehicle that compares favourably with the internal combustion engine on every level, including overall value for money at a mid market price point by 2017 and ramping to big numbers to 2020 and beyond. Nobody invested in the stock is baying for the coffers to be raided for premature profitability because they smell blood in the waters of the auto market on Tesla's planned growth trajectory, that is what TSLA is all about. Premature profitability is purely the mantra of those betting against the stock and those desperately hoping to contain Tesla to a small profitable player in a niche of the market well above mid market price points - no such respite will be forthcoming.
  • decent on March 30 2015 said:
    There is one big drawback with hydrogen. Energy from source to wheels is less than ordinary gasoline cars are able to achieve. Who will pay for inefficient and more expensive fuel, which is far from green being produced from natural gas.
    And another minor drawback is infrastructure. While electricity is available everywhere, hydrogen isn't. It is very difficult to transport and store hydrogen in large quantities. Also it is very energy consuming adding to that fuel inefficiency.
  • jaycee on March 30 2015 said:
    Zero emissions car? How long can this deception continue? Tesla is an upstream emissions car and an "Over in China destroy the environment extracting rare earth minerals" car. It is also a steal road taxes from the poor and middle class car and a drive the cost of electricity up for the poor and middle class car. Put Tesla on a fair competative cost base and it would bomb faster than the all the big one did in Nagasaki in 1945.
  • Mike on March 31 2015 said:
    I totally agree with the myth of the zero emissions car being mythical at best. There are always going to be upstream emissions regardless of the energy source. I haven't looked at complete data from source to usage for each energy source to see which one emits more but in no way shape or form is a Tesla a zero emissions car.

    Here is the major issue that Tesla is going to have to contend with. EV sales in the US are not really growing all that fast. Where they are growing, there are substantial government influence in the form of subsidies and other government benefits fueling that growth. Add that with the much cheaper overall cost of gas and more car makers like BMW getting into the E Car business, Tesla has a tougher road ahead of them vs years past.
  • cd_eve on March 31 2015 said:
    When the batteries are cheap enough, I am going to take my ten year old Ford F150 supercab and convert it to an EV. I am figuring that the electric motor and two battery packs will get me that 500 mile range, calculating that I can build a plaform in place of the existing bed that will easily hold the battery load. MAybe spend $15,000 and I am set for ten years. No need to spend $75,000 for a brand-new car.

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